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“Timely Rain” in Jiading: CEIBS Alumni Lead Microfinance Innovation

Volume 3, 2014

Jiading Timely Rain Small Loans Company was barely ten months old in December last year when it won the Shanghai government’s 2013 Shanghai Financial Innovation Award for the Financial Information Management System it has developed for small- and micro-enterprises.

The expression “timely rain” implies “aid in need” in traditional Chinese culture, and is the nickname of a magnanimous character in the classic novel Outlaws of the Marsh. That’s why it’s such an ideal name for the company, founded by Song Mei (EMBA 2011) and a group of other CEIBS alumni, which specialises in providing loans for small- and micro-enterprises. Chinese banks are focussed on giving out large-scale loans, making it difficult for small-scale entrepreneurs and business owners to obtain loans, even when they are able to fulfil the requirements of the lengthy application and approval process.

As former Managing Director of Shanghai Chang Ning Chang Cheng Small Loan Company, and former Manager of the Market Development Department at Shanghai Housing Home Security, Song Mei had years of relevant experience under her belt. She was aware of the many opportunities available for those willing to lend to small- and micro-enterprises and decided to co-found Jiading Timely Rain. By April this year the company had processed 667 loans totalling RMB 1.155 billion and of that amount only RMB 0.152 billion has still not yet been repaid. 

“We assist the needy, not the rich,” says Song Mei. Milk tea shop owners, breakfast stall operators and meat vendors are the kinds of clients the company serves, with loans that can be as low as RMB 15,000. Many operate their business without any kind of systematic financial record-keeping, making it difficult to properly evaluate their loan request. So far the biggest challenge that Jiading has faced is to develop a process for performing due diligence on such micro-enterprises. It often entails patiently helping the business owner to piece together their records. “This is an important process. We can control our own risk only when we know what kind of enterprise we are granting our loan to,” Song Mei explains. She said many of the things she learned during her study at CEIBS have helped her in developing the company’s risk assessment process and assembling the right team to work with the micro-loan applicants. Besides being a good communicator and understanding the basics of finance, Song Mei said a competent evaluator must also be objective, reasonable, observant and amiable.

Jiading Timely Rain has evidently done an excellent job in risk control so far, as since its founding the company has managed to keep its ratio of bad loans below 1%. That has to do with the innovative Timely Rain Financial Information Management System for Small- and Micro-Enterprises that the company has developed. The system uses detailed indexes to evaluate and analyse the pre-loan risks, and aggregates all the pre-loan and post-loan data. The system can be integrated with external cooperative banks and financial software. Jiading’s system has also helped to reduce operation costs by 50% by improving efficiency. As the company develops further, Song Mei hopes to be able to develop an online platform that would allow it to combine its micro-lending platform with various Internet finance platforms. 

“It is difficult for small- and micro-enterprises in China because they are currently unlikely to receive any support from traditional banking institutions, yet they face a lot of pressure,” said Song Mei. “However, for those of us who understand how to provide ‘grass-roots finance’ service, this is a wonderful opportunity.”

The company’s other main challenges are to do with government policies. Though it expanded its capital pool to RMB 200 million in April, Jiading is facing a shortage of funds due to regulatory policies for micro-lending enterprises, which are only able to access funding from banks, and such loans cannot exceed 50% of the micro-lender’s capital. In addition, they are not classified as financial businesses for tax purposes so must pay the same higher tax rate as non-finance businesses do. “These policies mean a high cost for us,” explained Song Mei, “and our cost will be transferred to our clients, which is bad for the development of small- and micro-enterprises. We eagerly await a change in relevant policies.”

Song Mei says she would not have been able to develop her innovative finance platform without CEIBS – her study at the school had a profound influence on her. First of all, she met her founding partners among her fellow students. Secondly, the concepts and practices she learned in the course of her study have been invaluable in the development of the company. Even now, the CEIBS alumni network has been a helpful source of advice. “The benefits of my time at CEIBS will be a lifetime help for me,” says Song Mei with a smile.